Personal Liability For LLC Members

Individuals form business entities for many reasons, but the most common reason may be because the individual believes that the entity will protect him or her from personal liability. In a recent case, the South Carolina Supreme Court was faced with the issue of personal liability for an individual member of a limited liability company (“LLC”).

In 16 Jade Street v. R. Design Construction, Op. No. 27305 (S.C. Sup. Ct. filed August 28, 2013), R. Design Construction Company, LLC (“general contractor”) entered into a contract with a developer for the construction of a small condominium project. During the project, problems began to arise with a subcontractor responsible for framing and concrete block installation. As the problems continued, both the general contractor and subcontractor left the project leaving numerous alleged construction defects behind. 

As a result, the developer filed a lawsuit and included both the general contractor LLC and its individual member. Following a bench trial, the individual LLC member appealed the finding that he was personally negligent for failing to supervise the subcontractors.
The South Carolina Supreme Court did not address whether the Uniform Limited Liability Company Act (“LLC Act”) shielded the individual LLC member from personal liability, but instead focused on the question of whether the Residential Home Builders Act created a legal duty for a residential builder license holder.

After reviewing the language of the Residential Home Builders Act, the court found that nothing in the language creates a duty in tort. Thus, the South Carolina Supreme Court reversed the circuit court’s holding that the individual LLC member was personally liable because he owed no duty to the developer.

This case gives some assurance to a member of an LLC engaged in the construction industry. If there is no duty, a negligence claim will fail. However, the court did not reach the novel issue of whether the LLC Act absolves an LLC member of personal liability for negligence committed while acting in furtherance of the company business—an open question that may cause concern for individual LLC members across South Carolina.


Josh Bennett is an associate with Rogers Townsend & Thomas, PC.  He focuses his practice on litigation matters, including construction litigation, insurance defense, products liability, contract litigation, and other related areas.
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